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When it comes to taxation, Labor has a purpose – the Coalition has a slogan

As the Coalition do their usual big scary number thing, the real debate about taxation is being obscured.

The government’s plan is to cap taxation to an arbitrary percentage of GDP. No-one has ever explained why or how they came up with a figure of 23.9%.

They want rich people to pay less tax, flattening out the income tax scale and making it more regressive.

They have already gone back to indexation of the fuel excise, which is a regressive tax, and smokers are now making a much larger contribution to revenue.

For the moment, they seem to have shelved their plans to cut the corporate tax rate for big business or to increase GST or introduce a GP co-payment.

We are given statistics about how much of the tax burden is borne by the top income earners but they are rarely accompanied by analysis of what share of income they receive and what share of wealth they possess.

The top quintile earn almost as much as the other 80% of households combined. The wealth of the highest quintile households, on average, is 80 times that of the lowest quintile households.

We hear a lot about “taxable income”, ignoring the fact that the wealthy are able to employ accountants to manipulate their investments and spread their income to reduce their tax obligation to zero.

Sixty-nine Australians who earned more than $1 million in the 2016-17 financial year did not pay a cent of income tax. Not even the Medicare levy. Thirty-seven in this group claimed franking credits totalling $7.8 million.

They claimed millions in deductions, primarily for the “cost of managing tax affairs”, but also for “gifts or donations”.

According to ATO data, one-third of large Australian companies paid no tax in 2016-17 despite making a gross profit. They do this through a variety of means – claiming tax losses and concessions that can go back several years, distribution of profits to other entities within the broader group, reinvestment back into the business through share buybacks to name a few.

Even taking into account all these legal methods of tax minimisation, the ATO still estimates that there is a shortfall of about $1.8 billion on the tax that should have been paid.

The Coalition want to reduce taxes for people who have the greatest ability to pay them and the greatest capacity to avoid them. The only justification offered for this approach is a slogan – if you have a go, you’ll get a go.

Labor’s approach is to cut income taxes for low and middle income earners in order to stimulate consumption.

They will restrict negative gearing to new dwellings in order to stimulate construction.

They will reduce the tax concession for capital gains tax to 25% still allowing investors to get a quarter of their income tax-free.

They will cap the deduction for managing tax affairs to $3,000 so people’s taxable income will better reflect their actual income.

They will stop giving people refunds on tax they haven’t paid. Franking credits are supposed to be a tax offset, not a gift.

Labor has proposed introducing a minimum tax rate, of 30 percent, on distributions from a family trust which means they will be less likely to be used for tax avoidance and wealth creation.

They want to increase the Superannuation Guarantee to 12% which will have a significant impact on retirement savings, especially of young workers. They also want to introduce superannuation payments for those on parental leave and to decrease the $450 a month threshold at which the SG kicks in – both of which will largely advantage women and young people.

Labor’s tax policies have a purpose as opposed to a slogan.

Projecting taxation revenue for the next ten years is a ridiculous and pointless exercise. Their predictions don’t last for six months.

Treasury was very quick to point out that the numbers they supplied to the Coalition were not based on Labor’s policies and did not take into account how the interaction of policies might affect their projections. Changing taxation rules changes behaviour so without considering this the big scary number is utterly meaningless.

But one thing is clear. If the Coalition go ahead with all of their proposed tax cuts, they will have to severely restrict government spending and services or get used to growing deficits.

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  1. Keitha Granville

    I favour a radical plan. No deductions, tax calculated first on your ACTUAL income. Raise the tax free threshhold to 35,000 and then have 25% and 35% rates for all. Nobody gets to reduce their taxable income BEFORE claiming stuff, even assuming there is stuff to claim. Gosh , we might even be able to have a flat 20% for everyone.

    Someone has to do something about people with millions who pay nothing.

  2. Peter F

    Unfortunately Kaye slogans have been found to be successful. Excellent, as usual, thanks.

  3. pierre wilkinson

    will these corrupt bunch of incompetents ever be held to account?
    will their endless lies ever be called out?
    will we finally be rid of them come May 18th?
    oh please let it all be so…

  4. RomeoCharlie29

    Another excellent piece Kaye Lee, I support all of Labor’s policies around taxation but hope that once they win power, they go further. They really do need to cut back on subsidies to the miners and “explorers” , the idea that tax concessions for exploration can be carried over for minimising profits once achieved is such a perverse concept: not only do taxpayers cover your exploration costs but then help minimise your taxes? Such a concept might, I say might, have been valid in earlier years but once we became the world’s quarry, and especially foreign owned, there ceased to be justification. Give them the equivalent of the Tradies write-downs maybe but it’s time these filthy rich, environment destroying gougers paid their own way, in full.

  5. Kaye Lee

    Scott’s slogan no doubt resonates in the circles in which he moves but, for the vast majority of people, no matter how hard they work they can’t seem to get in front, or no matter how hard they try, they can’t get a job interview, or no matter how frugal they are, they cannot save the deposit for a house. Three million people living in poverty should be a far more crucial imperative for government than wealth creation.

  6. Kronomex

    In the end making changes to the taxation system will only last until the LNP manages to get back in then it will all be changed in the, no doubt, name of fairness for all. Around and around and…ad nauseam.

  7. Andrew Smith

    The strategy is another US import of economist Buchanan linked with Cato (Koch) Institute promoting (radical) right libertarianism.

    From author of ‘Democracy in Chains’:

    ‘In 2017, Nancy MacLean published Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America.[21] Her book claims that Buchanan saw a conflict between “economic freedom and political liberty”, and that he sought “conspiratorial secrecy” in pursuit of “a hidden programme for suppressing democracy on behalf of the very rich”.’

  8. MöbiusEcko

    …no matter how hard they work they can’t seem to get in front,

    In the end, this is what got Howard kicked out. The gap between Howard’s aspirational battlers and their reality of barely treading water in a supposed booming economy saw a backlash against him, the supposed greatest economic manager ever.

    It’s very similar now. Morrison is shouting out great economic management and a great economy, apparently, all his doing, but the reality is people are going nowhere.

  9. Wun Farlung

    When I was a kid and the hard sell of ‘trickle down’ was in full swing, a single income family paying higher than now income tax could get by.
    Now after the ‘globalisation’ rivers of gold for all and sundry fairytale has been sold, a two income family paying less income tax (per person) struggle.
    We have been well and truly trickled.

  10. Henry Rodrigues

    It is fairly incomprehensible to me that with all the evidence about the inequality in the tax systems and the obvious effects that has on ordinary people’s lives and their stunted economic futures if this state of affairs continues, the coalition still manages to gain the support of approximately 50% of the voters. Either they are stupid or blind or so disinterested that they just go to the polling booth because they have to. Murdoch and the right wing ratbags share a lot of the reasons for this, but the voters must also be held to scrutiny. Are they so dumb ?????

  11. Andrew Smith

    Henry R re. ‘It is fairly incomprehensible to me that with all the evidence about the inequality in the tax systems and the obvious effects that has on ordinary people’s lives and their stunted economic futures if this state of affairs continues, the coalition still manages to gain the support of approximately 50% of the voters.’

    I often pick up from comments by rusted on middle aged Labor voting friends, (and of course Liberal too), in the prized upper median age vote who seem unaware of how neo liberal they have become (conditioned by politicians, media and social narratives). Although all union members in the past many had early retirement &/or packages in the PS, then contract back in and remain ‘holding chairs’ precluding advancement for younger employees whom are casual.

    One friend bragged of how low cost his house was paying rates only (gift from mother in law) while explaining that a mutual friend was compelled in returning to work in PS from early retirement as the money was so good (yet not needed with defined benefit retirement and house paid off).

    Australians are bread heads, or very neo liberal, obsessed about work (status), salary/super and house value; not subjects of interest outside of Oz but understood by MPs well to spook upper median age voters.

    Reminds one of the adage, ‘gentlemen should neither talk about themselves nor money’, yet we are encouraged to do so as a sign of success.

  12. Henry Rodrigues

    Andrew Smith………….. There is a lot of truth in what you write. Some of their reasoning is they feel self righteous about why they are successful and others not, eg they worked very hard, fortune favoured them, they looked after their families etc. As far as I know, amongst my family and acquaintences, most of them fall into that category. But there is also the accident of timing, when Australia afforded us all a good living, plenty of employment and choice of employment, housing was relatively much cheaper. They all made hay while the sun shone. But now these very same people are aghast that they have to pay taxes. One person who owns an investment property was fuming that Labor wants to change the negative gearing arrangements. I suspect that he considers himself to be a part of the ‘landed gentry’ and its unfair that his success is now being viewed as undeserved. Oh, and he doesn’t feel shy to boast about it, ie owning an investment property. Seems to have forgotten the free education, the free health care, the clean environment, great food standards, safe society, dependable electricity, clean water, effective sanitation etc. All paid for by taxes.

  13. totaram

    Henry R: The person fuming about Labor’s changes to negative gearing, did not even know that they are to be “grandfathered”. I hope you set him straight on that.

  14. jake

    i’m a lot nastier than the labour party and a lot crosser with the lying nasties

    i would go further with negative gearing and even with the grandfathering, restrict negative gearing to a maximum of one house

    why should there be a tax rebate on a profit making venture – it would also cut out the argument that negative gearers are just your mum and dad investers

    when we went for our first home loan, we had a 30% deposit, our incomes were over half the value of the loan and we were knocked back because the interest rate went from 14% to 14.5% – no-one offered us any rebate on the interest we would have been paying

    i would also restrict the number of trust accounts one family can have and tax any monies maybe 15% before the money went into them and no money can be sent offshore by anyone before paying a tax of some sort

    i agree with keitha – have to limit the pre tax claims and have it compulsory that the ATO require proof of the validity of any claims that reduce anyones tax below 1/2 of the rate applicable for that income level and definitely limit the amount you can claim to manage your tax

    i’d also do a major audit on the big accounting firms because the level of dodgy on behalf of their clients must be followed through with the amount of dodgy in their books

    6 years of the lying cheating arrogant nasties has removed all my tolerance for rorts

  15. New England Cocky

    “But one thing is clear. If the Coalition go ahead with all of their proposed tax cuts, they will have to severely restrict government spending and services or get used to growing deficits.

    But the Liarbrals tell us that they are the best economic managers because they have almost doubled the national debt and have yet to get the Budget into positive territory.

    The Liarbrals are the Best Financial Managers?? And Donald Duck is kangaroo!!

  16. Andrew Smith

    Issue Libs have with their preferred upper median age demographic, is to support more pensions, health care and services but needing more (temp) immigration and/or higher taxes.

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